by Tom Anderson
Founder and CEO, Supernova
The lending industry is rapidly changing. As clients’ needs evolve and the industry transforms, we see several changes coming to the industry from loan structure, to use, to the market itself.
We envision a future where individuals will not have many loans. People will have a single loan – a lending solution – to fulfill all of their needs.
Borrowers will use the single loan to access the best rates. Many borrowers will be paid to borrow the lowest levels of debt. Those who do not borrow will have it in place to maximize flexibility.
This lending solution will be dynamic and adjust to the changes in your life. It will be flexible. It will be transparent. It will start at 0%. It will empower individuals to make better decisions on saving, consumption, and paying down debt.
The Impact of One Loan: The Commoditization of Lending
The commoditization of lending means that everyone who produces a commodity of a certain quality receives the same rate. This system levels the playing field between governments, individuals, and banks.
Each entity is just another borrower or lender.
Each stands on the same ground.
Each has the ability to borrow as a function of the risk that the market perceives.
Technology + Markets Will Protect and Empower
Personal finance will be more like your grocery store. At your grocery store you have virtually limitless selection and could buy virtually endless quantities of food, if you can afford it. You could buy all junk food, you could buy all health food, or you could buy a combination.
Similarly, you will be able to borrow virtually endless sums of money – at virtually endless costs – or you will be able to borrow small amounts of money at nominal (to negative) costs. You will be empowered.
You will easily be able to place most any level of protection, against markets or personal behavior, that you desire for your borrowing. Like the calorie count on display and health data on food labels, tools, technology, and markets will come together to give you responsive feedback.
You will know the cost of everything. Yes, there is the immediate cost of an item but what is the long-term opportunity cost? You will know the real-time impact of purchase decisions on your short-, medium-, and long-term goals. You will quickly and easily know the benefits of purchasing now versus later, new versus used, smaller versus bigger.
A Future of One Loan – Not Loans
We envision a future where a loan (in our case a BriteLine) can provide a comprehensive, integrated, holistic solution to borrowers’ needs. This structure reframes the conversation. When you need money for something, you turn to your loan. Not loans, plural. The loan is proactively set up and always at the ready. Every part of the loan is based on your needs, goals and risks.
The playing field is leveled. All people, governments, companies, and banks have access to borrowing at the same terms. All loans of a similar grade receive market-based prices. Loans within a certain band are standardized–they have the same risk–and therefore receive a common price. As the grade changes, the price changes. Similar to corn, wheat, or soybeans, the price changes on a daily basis based on market conditions.
There will be no discrimination in lending. Lending will be formula-driven and all will have access to the same cost of capital and be able to borrow at the same rates, regardless of race, religion, gender or sexual orientation.
It will be stunningly inexpensive. Rates will start at 0%. All people will have access to borrowing at rates less than most (if not all) governments and most (if not all) banks. This doesn’t mean that all consumers will borrow at 0%. Many will be so safe that they are paid to borrow money. Others will choose to increase their borrowings to a point where they are comfortable balancing the forces of enjoying the present and preparing for the future. However, many individuals will borrow at rates lower than institutions and governments. The rate will move higher as the loan becomes riskier (because of increased borrowing or decreased value of collateral or income).
The robust feedback will encourage responsible behavior. Every day, borrowers can see the cost of having different levels of debt. They will also know the exact benefit of reducing their debt – the rate of return they would receive for paying down their debt. Borrowers will know what costs them 0% and what costs them 19% and – like the effectiveness of the calorie notification on a cookie – will change their consumption habits.
There will be zero inefficiency. Today, borrowers have cash and debt. This introduces significant friction costs when borrowers pay lenders rates of return higher than their cost of debt. For example, if a borrower has a $200,000 home loan at 4 percent and $50,000 earning 0 percent, she is losing $2,000 per year to the friction costs. No more cash and debt. If you have debt, you simply move to a system of available credit which eliminates these costs.
Nobody owns your loan. There are servicers, but the loan is based on the borrower, and the borrower is in control. The borrower selects the servicer, who helps with selections such as fixed or floating and explains how the cost changes as a function of the loan’s riskiness and decisions the borrower makes.
It is neutral on currency and will transcend the world. Borrowing can take place in any currency, and loan proceeds can be quickly and easily converted into any other currency, including the currency in which the loan was originated.
It is 100 percent transparent to the borrower and the lender. The borrower has a complete understanding of market rates, risks, and costs of mitigating the risks, either through her own behavior or through products that she can purchase in the market. The lender has full transparency into the value of the borrower’s underlying assets and income every day and is in a first lien position on all assets and income.
No More Loans: One Loan.